- Zest Finance
It was only about three months ago when ZestFinance, the online lending startup founded by ex-Google CIO Douglas Merrill, launched a new loan service called Basix.
Basix is a lending service aimed at the “near prime” market, or people with credit scores just below levels that would qualify them for regular bank loans. Merrill says millions of near-prime Americans had been underserved by banks, especially since the 2008 financial crisis, and Basix makes it easier for them to find affordable loans.
In the three months since its launch, Basix seems to have grown pretty fast – so much so that it just sealed a $150 million debt-financing deal with Fortress Investment Group, one of the world’s largest investment firms, with roughly $70 billion in assets.
The new funding will be used for the consumer loans that Basix provides.
“It’s a public validation that Fortress believes in our team and approach,” Merrill told Business Insider. “It underscores their belief in our technology and that our technology will be a key element to transform this space going forward.”
Thousands of signals
Basix is the newest product from ZestFinance, and it’s built on top of ZestFinance’s underwriting technology, which looks at tens of thousands of “signals,” such as personal spending habits and previous rent history. Merrill says it’s a much more effective underwriting tool than the traditional credit-score method, which takes into account fewer than 20 variables. Based on the determined user score, Basix offers loans of $3,000 to $5,000 over three years at a fixed APR of 26% to 36%.
“The essence of underwriting is trying to find the ability to repay and the willingness to repay, and that’s really hard to do in the FICO-based traditional underwriting,” Merrill added. “Our approach is to be able to capture a really rich view of all the applicants. Can you pay us back, and if you can, will you pay us back? And that’s what we’re really good at identifying.”
Merrill didn’t disclose any financials or growth numbers except to say Basix had made “thousands” of loans, worth “millions of dollars.” Instead, Merrill said the fact people were coming back to his platform was proof of the service’s effectiveness.
“If we offered a really bad credit deal, why would we have customers and why would they borrow from us?” he said. “We think we offer a fair price, and more importantly, we’re offering a transparent deal. There are no surprises, no weird fees.”
ZestFinance was founded in 2009 and has raised over $250 million in funding. In addition to Basix, ZestFinance has an emergency loan service called ZestCash targeting subprime borrowers. Merrill says the underwriting technology, built by a group of former Google engineers, leveraging Google’s machine-learning and data-science technology, is essentially what the new investors are counting on.
“Fortress was impressed with Basix and our model even before we raised our first loan,” Merrill said. “We demonstrated it’s going to work quite well, and Fortress’ capital will allow us to serve this market more effectively and more quickly.”